Is It OK For Nonprofit Leaders to Make Big Salaries?

Recently, I came across this comment on a Huffington Post article about nonprofit salaries:

“Here’s why I don’t donate to non-profits. There is no legal cap to the salaries paid to executives. Really? Do y’all think I donated to feed the pig CEO, or the needy? See a poor person in the street, give them the money. They may buy a bottle, but at least they will see the money, with no strings attached.”

At some level, he has a point.

If the goal of a nonprofit is to solve a societal problem, shouldn’t as much money as possible go directly to the people being helped? Isn’t it true that every dollar paid to the “pig” CEO is a dollar pulled away from achieving the mission?

It’s exactly this commenter’s attitude that makes nonprofits frightened about “overhead.” I’ve written before about whether nonprofit overhead is too high. Today I want to explore something a bit more specific.

Is it inappropriate for nonprofit leaders to be well paid? And how can nonprofits – especially smaller ones that don’t have big budgets — navigate this dilemma?

I WAS ONCE A WELL PAID NONPROFIT EXECUTIVE DIRECTOR

As you may know, in the years before I started Joan Garry Consulting, I served as the Executive Director at GLAAD, a mid-size gay rights nonprofit.

During my tenure, a leading publication conducted an annual survey of the salaries of executive directors in our particular sector. My colleagues and I dreaded the day this article hit the newsstand every year.

Why?

No one wanted to be at the top of the list.

Hit the top and you became a target. Your board starts asking questions about comparable compensation and folks in general just start making comments – and not of the “you’re worth every penny” variety.

I call this phenomenon “salary angst.”

Salary angst doesn’t happen in the private sector. CEOs fight for the honor of making the biggest salary. Right or wrong, it’s considered a measure of effectiveness. It means you’re a good negotiator. Companies fall over themselves to pay more money to attract the candidates they consider the best.

Not remotely so in the nonprofit sector.

One year I hit the #1 spot on the salary survey. Ugh. Salary angst.

What made this even worse was that GLAAD wasn’t the largest organization in the movement. Why should I be making so much money? Never mind that it was a major pay cut from what I made in the private sector before I came aboard.

I found myself having to justify being well compensated. It made no difference that I had been, by many measures, an effective leader, manager, strategist, public voice, and movement leader.

While I no longer work as an executive director, I sure do work with a lot of them. Some of them feel a sense of guilt at making a semi-reasonable salary. Others resent making so little. But for most of them, their salary isn’t something they feel particularly good about. They have serious salary angst.

This has big consequences.

THE CONSEQUENCES OF EXECUTIVE DIRECTOR SALARY ANGST

Nonprofits exist in a free market. They need to be competitive in order to attract the best talent.

It’s that simple.

Big companies pay big bucks.

Startups attract outstanding leaders by offering company shares that can eventually make the CEO very rich.

Strong leadership is not just important for a nonprofit – it’s absolutely critical. This person is the voice and face of your organization. The strategist. The visionary. The lead fundraiser. The advocate. A leader in your sector.

Without strong leadership, nonprofits die.

So no – it’s not true that every dollar paid to the “pig” CEO is a dollar pulled away from achieving the mission. To the contrary, a healthy nonprofit with outstanding leadership will be able to help more people in a more effective and bigger way for a much longer time. They achieve their missions faster.

When a terrific leader from the private sector is considering a position at a nonprofit, there’s only so much of a pay cut she’s usually willing to take. Yes, it’s an opportunity to do good in the world… to make a real difference… and that has serious value all by itself. But that doesn’t put her kids through college. And there are plenty of ways to do good in the world while working in the private sector and making a lot more money.

Do you see how shortsighted nonprofits shoot themselves in the foot by not paying competitive salaries to their top leaders?

6 WAYS NONPROFITS MAKE THEIR LEADERS FEEL SALARY ANGST

Boards that overly focus on reducing overhead at the cost of not attracting the very best available leadership tend to screw up contract discussions. This is a great way to make the leader feel the salary angst. It’s also the fast lane to a leadership exit.

For example:

They avoid salary discussions. When the ED has to nag the board chair to remind her that it is well past 12 months since the last annual review and compensation discussion. No one ever wants to nag the boss for a raise.

The process takes forever. It never feels like it is taking forever to board members. They are busy people and lose track. Meanwhile the ED sits and waits. And gets frustrated and feels de-valued.

“Conversations” happen via email. Discussions about how much money you make should not happen in email. Email is voiceless, toneless, and never can communicate the sense of value and appreciation that ED’s need to hear.

Board Chairs say “You know our organization can’t afford to do any more.” If I’m an ED, I hear that and realize that my board is not making any connection between my salary and their ability to fundraising aggressively on behalf of the organization. And you know how I feel? Really angry.

Board member says “The joy and privilege of working at a nonprofit has to be considered as part of your compensation.” It is a joy and a privilege but don’t let this one go if someone says it. As I wrote before, there are lots of ways to do good and important things in this world. Why should the ED want to stay at this nonprofit.

Your spouse’s high paying job is mentioned during your salary negotiation. This happens more than you’d imagine. Honestly, it’s offensive. What your spouse makes has nothing to do what you should make. NOTHING. It’s wishful thinking on your board’s part that you’d work for cheap (or free?) But why should you? You are a high performing ED. You have power in these discussions. If I found myself in that position, I’d either say, “I’m going to pretend you didn’t say that” or “That comment and information is both irrelevant and offensive.”

HOW CAN SMALLER NONPROFITS DEAL WITH SALARY ANGST?

Here’s the dilemma. It’s all well and good to say that nonprofits need to pay competitive salaries. Perhaps you’re thinking, “I’m sure a UNICEF or Red Cross can afford to do that. But I work at a 6-person nonprofit with less than a million dollars in revenues. Do you actually expect us to pay 25% of our total budget to the Executive Director?”

It’s true. Smaller organizations may not be able to compensate their EDs as well as they deserve. There are hundreds of thousands of 501c3 organizations in the US with budgets under $500,000.

Private sector startups without much or any revenue handle this by offering stock options. That’s not something nonprofits can do.

But what you can do is make the ED feel like a million bucks. At the end of the day, it’s the combination of a reasonable wage and solid value and appreciation that will fire up an ED to deliver a five-star performance.

Here are 8 things smaller nonprofits can do to make their EDs feel valued, especially if they’re not in a position to offer competitive salaries.

Annual review. Formal and on time. Get out in front and alert your ED that you know it’s coming up. Don’t make the ED nag.

Get creative about money. Maybe the organization cannot afford a raise. Tell her that and also tell her that the board is going to take responsibility for a year-end bonus of some sort based on some simple achievements. Then, unbeknownst to the ED, each board member gives (stretches if they have to) to reach a very nice amount. Can you imagine how much that would mean to an ED?

Get creative about assets. Consider assets that the board has that can be part of a compensation package. A one-week vacation at a board member’s second home while the board member is out of town. Or even a long weekend.

Make sure the salary is reasonable. Do your homework. Be sure your ED is being paid on par with other nonprofit ED’s in your size and geography.

Respond. Make a board commitment to respond to every ‘success’ email the ED sends (if you believe you can deliver on it). ED’s talk all the time about the “radio silence” they get to exciting emails about program successes. If a board could change that dynamic, the level of appreciation an ED feels skyrockets.

Offer a sabbatical. How about a month off with pay? Great way to test drive the organization with the board and other staff driving. Great way for an ED to re-charge. Note: Please give this some thought and not through a corporate or even an academic lens. Boards often reject this out of hand because it is not in their frame of reference. Don’t take my work for it. Read this article from the Stanford Social Innovation Review.

A FINAL THOUGHT

To all of you who sit on a board, a search committee. To search firms. To EDs who are timid about salary negotiations.

To everyone in the nonprofit world who has salary angst.

Let’s revisit the comment I mentioned at the beginning.

“Here’s why I don’t donate to non-profits. There is no legal cap to the salaries paid to executives. Really? Do y’all think I donated to feed the pig CEO, or the needy? See a poor person in the street, give them the money. They may buy a bottle, but at least they will see the money, with no strings attached.

This is what we are up against.

If you are a board member and feel even the slightest bit of this, it is time for a serious attitude adjustment.

Think of it this way. As a board member, you are an ‘owner’ of the enterprise. The success of all of you is dependent on the folks at the top and their ability to deliver on the promise. Whether you run a tiny, mid sized or large organization.

Please start thinking that way. Put yourselves in the shoes of your current leader and remember:

Your leader is outstanding. He has plenty of other options. And the joy and privilege of service is actually NOT priceless.

Widely known as the "Dear Abby" of nonprofit leadership, Joan works with board and staff as a strategic advisor, crisis manager, change agent and strategic planner. Joan also teaches at the University of Pennsylvania with a focus on nonprofit communications and leadership.

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You get what you pay for. Compensating an Executive Director with an amount that is “un-pig-like” might feel good and have the appearance of looking good to some, but results are what really matters. I’d much prefer to pay an ED $250K a year and have them generate a few million because of their skills than to pay an ED $50K a year and have them struggle.

Isn’t it ironic that so many of our nonprofits have incredibly vibrant and important missions towards helping people but then their own operating practices are paying their key staff as little as they possibly can?

OK Craig. I wish I had incorporated your last line in the blog post. SO SO clever!!!!! And as always, your comments are spot on!

Catherine Wilson

Yes, yes, yes! When I vowed to work in service and help those who are impoverished, it didn’t mean I took a vow of poverty. I am VERY lucky that given my organization and it’s financial status, our executive board understands you get what you pay for. But not all non-profits are like that, AND it’s sad when the public doesn’t recognize you can’t achieve the mission if you aren’t paying a living wage to the staff.

Catherine. You are indeed lucky. Here’s hoping that the rest of your staff feels the same way so that there is a good sense of pay equity amongst the staff.

Jodi Segal

The # of nonprofits that overpay their CEOs can be counted on my fingers and toes. The real issue is that nonprofit staff are systematically underpaid. We should be talking about how to make working in nonprofit an affordable and competitive, therefore desirable choice, for talent. That’s how we’ll solve the many important problems we face.

Great article. Several years ago, a former board president attempted to lower my salary two months after the board had approved a raise! Aaaargh! My current board has been very creative with compensation and I appreciate what they do more than they will ever know!

Jennifer Browning

My favorite (not) comment about an ED salary from a board member is that if you can raise more we would be happy to pay you more. Really? For starters that implies that I don’t currently raise as much as I possibly can and if I just tried harder I could get a bigger salary. Also, I can’t in good conscience raise money to pay myself more. I think that goes against the who nonprofit concept right? Or if I did raise more money, that money should go to fund the work or give my staff better salaries.
The low salary is a real problem if you are interviewing for another job and they ask you for your compensation. It is embarrassing to answer honestly and then say, but my board would pay me more if they could.

Carrie

I just started as an ED at an org that has really struggled with fundraising. Really, really struggled for the last several years (I actually backed out of a consulting gig with them two years ago, because they kept saying they were looking for a “silver bullet.”). My predecessor, who is a great executive, but just not an individual fundraiser, like a COO, was paid about 20% more than me.

While I feel I am worth more than she was being paid, I also cannot with a good conscience go to a funder and ask for them to support that salary line in our paltry budget. I mean, were I sitting on the other side of the table, I would scoff – we have only given outputs, not outcome, and those have been smaller and smaller each year, while salary has grown. To me, that’s poor management. So I came in at that 20% less (still a raise over what I was making as a DD, and I’d never be seeing a large raise in that role, no matter how great I did), and said we’d discuss both a bonus and higher salary at fiscal year end. I will be firm on my end – for sure – about this.

As you may guess, I have quite a different personality than my predecessor, and a very different approach!

Justin Schott

While I agree that people, particularly funders and donors, and boards too, need to stop haggling non-profits over costs and salaries, I disagree that EDs deserve salaries that are so out of whack with the incomes of their staff and the clients they serve. In general, I think if you can’t look every employee and every client in the eye and tell them what you make without feeling like you’re doing something wrong, well, there’s something wrong.

Joan, you mention being #1 on the list but don’t have the guts to tell us what you made. I’m proud to say I make $75k / year, not because I couldn’t get more or don’t think I’m worth more in the free market or EDs should live in poverty, but because it makes sense. If I envision a world where people aspire to make $250 or $500k, that’s a world with a lot of inequality, and I can assure you many of the employees in the big non-profits are scraping by. I look at foundation execs bringing in $800k in compensation to GIVE AWAY MONEY, seriously? They claim to understand the poor they are trying to help, but I seriously doubt that given the swanky lifestyles. And why is the private sector a good comparison? “Well, I’m still only doing half the unethical stuff the private sector does, so it works out ok….”

How can ED’s argue for their own 6 figures and not address salary scales across the board? And if you had a floor of say $50 or $60k for every employee, well, I’d imagine there was a better way to pay for services but maybe not. I’m not a martyr or a saint and still look out for myself; there is still capitalism acting within our organization. But we need to rein this in. That’s where my angst comes from – reading the 990s of my peers on Guidestar and thinking about the hypocrisy of it all and how painful it would be for them to be transparent.

If you want to make money, go do it. No one is stopping you. But don’t defend an endless race to the top. EDs need to be leading the fight for economic justice by example, not further separating themselves from the front line workers. Taking less than you could, which flies in the face of what most of us were taught to do as kids, is a brave way to chip away at a system that perpetuates poverty.

Practically, I think this means setting an org wide salary structure that pegs the top to the bottom, say at a 2:1 or 3:1 ratio. Sure, if your lowest paid worker makes $100k, go ahead and take $300k for yourself. And ditch your (c)3 while you’re at it.

Justin. Wow. There is a lot here – not sure how to go about responding. The one thing I will say is that I am hardly suggesting that only the ED or CEO should be well paid. I am making the point that nonprofit staff deserve to paid reasonable wages, deserve to be treated well during a salary discussion and if that money is a serious challenge, boards should be thoughtful and creative about appreciating and valuing employees.

Justin Schott

No debate there – thanks for your reply. Would love to hear more of your thoughts on overall staff compensation in a future post.

Thanks for a nice article. I am lucky enough to work for a medium-sized 501(c)3, well funded and successful, so my staff and I are reasonably well compensated. But: I did work most of my life in the private sector, and I took the conscious decision to switch to an organization with a mission (as opposed to an organization with a ‘commercial’ mission), and took a significant pay cut as a consequence. I am fine with that, it was my decision and I didn’t land too badly after all. The only thing I would identify with from the article is the painful process to get my evaluation completed at each year’s end. It does take forever and I do have to nag and push multiple times, just to get a simple letter put together in haste that is usually very complimentary but obviously not well thought out. Hopefully that will improve in the future.

I do not feel that executive compensation can be done in a vacuum. I have seen a variety of organizations whose rank and file are making barely minimum wage, and middle and upper management a bit more but the CEO is in 6 figures. There is a formula that I was taught years ago when a student of the Hay system of salary administration: The Executive should not be paid more than 15 % more that the second highest paid executive. It makes sense. And not, I do not support contracts for top officers. Not, at least, until the executive has worked for at least 5 years as an at-will employee.

As someone who recently left my nonprofit, in part to many of the issues you raised (I hadn’t had a raise in seven years, even though the earned revenue stream I created went from 0% to 80% of our funding in that time), there is so much I can say about this.

However, one thing that we are also up against is that compensation on a commission basis is considered unethical and performance bonuses also are not considered best practices. If someone raises many millions more dollars for the cause, which is then put into enhanced programs which help exponentially more people, then that person should be compensated much more highly than someone who has flat revenue and program growth.

I don’t have a problem with the Dan Pallotta/Wounded Warrior model where if you raise many more millions of dollars for your cause than someone who doesn’t by not investing in marketing and other critical overhead, you’re paid more for that effort. It’s the board’s job to own that approach, defend it from criticism, and rein in any excesses from an optics perspective, but they shouldn’t be hanging the CEO/ED who raises tens of millions more than his or her predecessor out to dry for a paycheck that reflects the success and visibility brought to the organization through his or her efforts.

In my experience, the people who say things like the person you quoted will always find a reason to not donate or contribute to something. They just want/need a reason to feel ok about it. They probably also talk about not giving money to people on the streets because one time they heard a story from a friend who heard about someone who saw another person get into a BMW after begging for money by the highway. However, it is a ridiculous narrative that is being told in popular culture. Even high paid nonprofit leaders make at best half of what they’d make in a similar size organization with similar responsibilities.

Roger Gallup

Then go work in a similar organization and stop using the marginalized of society like the financial leaches you are. You can’t live on $50000 a year?….lot of people do. Do everyone a favor and find your dream job. There is no way you can relate to the people you “serve” anyway.
Amazingly, there are people who make lower wages and still do their jobs well, but none of you can relate to that. I have a new understanding of non-profits and non-profiteers.

EnosBurrows

This has convinced me never to donate to any normal non-profit or charity ever again.

I will donate to volunteer only organisations. And I would rather give money to an addict in the street.

raizinhell1

I agree. Nonprofits are scams. Like a goodwill CEO making a million in the name of helping others. If you really want to help others, get out in the field and get your hands dirty. Should limit all non profit salaries under 6 figures.

Jürgen Erhard

Meditate on the difference in meaning of “nonprofit” vs “for profit”.

Ava Green

I am all for EDs making a good salary, as long as they are DOING THEIR JOB. I recently met someone working at a non-profit where the ED has basically given up and does little to nothing. Salaries are not raised due to budgetary constraints, yet other items are purchased that are not essential to the operation and could have gone to compensate that great employee that just left due to low pay. If the ED is no longer interested in doing their job, the Board needs to do theirs by replacing him.

Alplily

A lot of the comments here bring up the same point… inequity between ED compensation and that of the staff. I would love to see a post about this. What IS a fair spread? Between the ED and direct reports? Between the ED and the lowest paid staff? What should be considered? I know one ED who will never allow himself to be paid more than 50% more than his direct reports, and another who has no problem making 3x what her director-level reports make. You can imagine the difference in morale at their two respective orgs…

Roger Gallup

Nowhere in any of this did I see a hint of concern or mention for the people you are supposedly serving. And the whinny, “you get what you pay for”…so you won’t do a job well unless someone pleases you? This kind of thinking is so out of touch with the reality of most people I’m not sure how you could do any non-profit dependent individual any good. You all have over complicated a process so only insiders can understand…a sort ‘good ole boys club’. When I see people coming to a food bank for basics and the people in charge of that going home in their very expensive car to their very expensive home, something is wrong.

Roger Gallup

There should simply be fewer non profits….gasp! Yes, similar services should be forced to join forces or lose non profit status. More good could be done…but that’s not the point is it?

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Joan Garry is a non profit consultant with a practice focusing on crisis management, executive coaching, and building strong board and staff leadership teams. She is also a professor at the Annenberg School for Communications at UPenn.